Pete Sandidge (Spencer Tracy) is a talented World War II American bomber pilot based in England, but he infuriates his superiors with his flying stunts that, they believe, put his squadron members at risk. His girl friend, Dorinda Durstan (Irene Dunne), also a flyer, fears for his safety as well.

Lieutenant "Nails" Kilpatrick transfers Sandidge and his buddy, Al Yackey (Ward Bond), off to a reconnaissance assignment in Scotland, where they become immediately bored. When a Nazi aircraft carrier is spotted off the coast, however, Pete and Al join the air squadron to intercept it. Pete's plane is hit by enemy fire and he instructs the others to bail, while he takes a desperate bombing run at the ship. He destroys the target but is killed when his fiery plane crashes into the sea.

Not yet aware he is dead, Pete walks alone in a cloud-covered Heaven, where he encounters an old buddy, Dick Rumney (Barry Nelson), who'd also been killed in an air battle. Dick takes him to the "General" (Lionel Barrymore), who counsels Pete on his new role to mentor new flyers for the War effort.

Pete returns to Earth to a San Francisco air training center, where he is to be a "guardian angel" to a pilot trainee, Ted Randall (Van Johnson). Pete "coaches" the rookie from the plane's back seat, by concentrating and influencing his thoughts. Ted soon becomes the best pilot on the base and is promoted to squadron commander. Pete's old friend, Al Yackey, is also stationed at the base and Dorinda, who had transferred to Australia after Pete's death, comes to visit him. She is still mourning Pete's death, but is charmed by the now confident Ted Randall, and accepts his marriage proposal, at Al's urging. Pete, unseen by the mortals around him, is mortified at this development.

Ted is called to the base commander's office and given an important, but extremely dangerous assignment of bombing a Japanese ammunition dump. He accepts the assignment without hesitation. Dorinda learns of the plans and, still in the grip of the memory of Pete, and fearing that losing Ted would be too much to bear, tells Ted that she can't marry him.

Dorinda goes to the base where Ted's bomber is being prepared for the mission and gets into the cockpit herself, followed by Pete's spirit. He tries to "talk" her out of it, but she takes off on her own, flies to the Japanese island, and successfully bombs the ammunition dump. As she returns to her base, Pete communicates with her about their love and about the nobility of the flying experience. He tells her that he is releasing her, that she must go forward with her life. She lands at the base and runs to the waiting arms of Ted.

There is no guy named "Joe" in the film, the name was slang for any American serviceman in the War. The portrayal of Heaven being run by uniformed, saluting American servicemen underscores the influence of WWII patriotism on Hollywood. The film was remade by Steven Spielberg as Always, which changed the flyers to peacetime forest fire fighting pilots.